It's been a couple of weeks now since we put Kroger stock through its paces and examined how it compares to rival supermarkets Harris Teeter and The Fresh Market in such areas as valuation (P/E ratio), historical performance (growth in years past), future prospects (estimates growth rates), and cash production (free cash flow). But in the meantime, Kroger was preparing a report card of its own.

Yesterday, Kroger reported its financial results for the first fiscal quarter of 2013. With these results in hand, it's time to shift from how Kroger stock compares to the competition to whether it's a bargain in its own right. Let's begin.

 For Q1 2013, Kroger reported:

  • $30 billion in sales, a 3% increase over Q1 2012
  • worse gross margins than a year ago, down 15 basis points at 20.65%
  • but also lower operating costs, down 21 basis points
  • which helped to boost per-share net profits to $0.92, up 18% from last year

Investors weren't thrilled with the numbers, sending Kroger stock down 6.1% in Thursday trading. Was this the right call?

Well, after subtracting capital expenditures from operating cash flow, Kroger ended Q1 with $999 million in free cash flow for the quarter. That number was 32% bigger than the company reported one year ago. It was also more than 106% bigger than Kroger's net earnings number: $484 million.

As a result, Kroger now boasts trailing free cash flow of $1.1 billion -- still not quite as good as its trailing earnings of $1.5 billion, albeit the gap is narrowing.

Valuation matters
Now, is $1.1 billion a big enough cash haul to justify buying Kroger stock? It depends. It's certainly more money than the mere $21 million Fresh Market has managed to generate over the past year or the $29 million FCF number at Harris Teeter. Of the three, Kroger still looks like the relative best value.

That said, $1.1 billion in free cash still leaves Kroger stock costing more than 15 times FCF, which is kind of a stretch for a firm that's only expected to grow profits at 7% annually over the next five years and that's carrying more than $8.6 billion in debt on its books. (A debt number, by the way, that grew in the most recent quarter.)

For the record, Kroger management is still insisting it can grow earnings at closer to 8% to 11% annually over the long term, and grow its dividend to boot. Personally, though, I'd still like to see the stock get a bit cheaper or see evidence of growth rates closer to 13% to 14% before buying in.

To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.

The article Kroger Stock Craters After Earnings originally appeared on Fool.com.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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